Resignations leave 452 in limbo

Three key members of the management team of 452 Capital, including the wife of co-founder Peter Morgan, have resigned without explanation leaving a question mark over the future of one of Australia’s most successful boutique fund managers.

The board told clients and major shareholders on Tuesday that its management team comprising Suellen Morgan, Mary Feros and Lyndsey Hancock did “not intend to continue to participate in the management of 452 Capital’s business after a period yet to be agreed with the board".

“The management team has advised the board that while they remain as employees, they will continue to perform their duties acting in the best interests of all clients of the business," they said. “The board is currently in discussions with the management team and major shareholders about options regarding staffing and the future of 452 Capital."

Directors at 452 did not return calls yesterday. Mr Morgan ceased to be a director in August 2009 after he took leave of absence from July to fight cancer. He was replaced by Mrs Morgan as an office holder at the same time.

The loss of key staff can significantly impact the support for a boutique, which relies on manager talent to attract funds. When Mr Morgan advised of his leave of absence, ratings house Standard & Poor’s placed the manager’s Wholesale Australian Shares fund on hold.

Mrs Morgan and fund executive Mary Feros took over as joint investment directors while Mr Morgan received treatment. S&P removed its on-hold rating in February and assigned the fund three stars. “S&P acknowledges that investment decision making and the determination of stock weights has always been the collective responsibility of the three portfolio managers. [We] believe the team is functioning well and appears highly committed; however, Mr Morgan’s absence is viewed as a significant loss to the team," analysts said.

S&P analyst Justine Gorman said meetings would be held late yesterday to obtain more information. “We are awaiting the outcome of discussions before making any decisions," she said.

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Researcher Morningstar Australia’s spokesman, Phillip Gray, said its analysts were considering their position. Morningstar reiterated its recommended rating for 452 in October.

The pending departure of 452’s team also impacts listed firm
Century Australia
, which uses 452 for investment management. “The directors of [Century Australia] are very concerned that the senior management team of 452 has apparently decided to leave, and that there is no satisfactory explanation of the ongoing arrangements for 452," it said yesterday.

It noted Century Australia chairman Rob Turner had spoken to 452 director Graham Hand, who declined to comment further. Mr Hand is also general manager of funding and alliances at Colonial First State, the wealth arm of Commonwealth Bank of Australia, which owns 30 per cent of 452.

Century Australia said it was seeking legal advice about its rights under the investment agreement with 452 and would appoint an interim manager if necessary. Directors had intended to propose an equal access buy-back and the firm said it would bring forward actions for its future.

The 452 Australian Share Fund has performed unremarkably against the S&P/ASX 300 Accumulation Index over most periods. Its investments option posted a 10.53 per cent gain for the year to June against 13.05 per cent for the benchmark. Other options slightly outperformed over three years but lagged over five and seven years.

Colonial First State has an agreement with 452 to distribute its Australian equity product in the retail market and oversees back-office administration while 452 focuses on investment management.

452 Capital was set up in 2002 and fully owned by Mr Morgan, Warwick Negus and staff. In May 2005, Mr Negus left and sold 30 per cent of his equity to CBA while retaining a minority stake. Mr Morgan is 452’s majority shareholder and other senior staff are also equity holders.